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Korean J Financ Stud > Volume 46(1); 2017 > Article
Korean Journal of Financial Studies 2017;46(1):217-248.
DOI: https://doi.org/10.26845/KJFS.2017.    Published online February 28, 2017.
The Regulation on Cross-Market Manipulations: Focusing on the Deutsche Bank Case
Cheol-won Yang, Ji-yeon Yoo
연계시세조종 행위에 대한 규제
양철원, 유지연
The Financial Investment Services and Capital Markets Act (hereafter `Capital Market Act`) established in 2007 includes the provision for regulation on the cross-market manipulations. In expiration day of Nov. 11, 2010, the closing price of KOSPI200 is determined at 247.51 points after falling severely by 7.11 points, which cause a huge disorder in the Korean financial market. The Korean Supervisory Service inspects this event and finds out that the Deutsche Bank submit tremendous sale orders of 199 stocks amounting to 2.44 trillion Won via program trading in condition of holding large amount of KOSPI200 put options. Afterward the Deutsche Bank is indicted for the cross-market manipulation based on the Capital Markets Act and the Korean Financial Services Commission announces the institutional reformation of the market microstructure on expiration day. This paper investigates three aspects of the regulation on cross-market manipulation focusing on the Deutsche Bank case. First, we deal with the types, requirements and weak points of the regulation on cross-market manipulation in the Capital Markets Act. Specifically, we explain the concept of `existence of purpose` to satisfy the requirement for the cross-market manipulation action and discuss how this requirement could be misused by manipulators. Second, we scrutinize the case of the Deutsche Bank by using the data of stocks and futures holding positions of the Deutsche Bank. We conclude that the Deutsche Bank holds more amount of long position in put options than reasonable positions needed to establish synthetic futures. Namely, it constructs speculative positions, through which tremendous profit could be earned if spot price declines. We also show the empirical results that volatility of closing price on expiration day are distinctly higher than that on non-expiration day. It is partially caused by the significant increase in the distinctly low-priced limit sale order or distinctly high-priced limit purchase order in the closing call auction, which are lack of economic rationality. These results suggest that there exist cross-market manipulation at the expiration day in Korea. Finally, we explain the institutional reform following the Deutsche Bank event and discuss the implications of these changes on the Korean capital market.
Key Words: 도이치은행,만기일,연계시세조종,자본시장법,투기적 포지션,Cross-market manipulation,Expiration-day,Speculative Position,The Capital Market Act,The Deutsche Bank
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